Stock market preparing for rally
2023.01.23 14:43
Stock market preparing for rally
Budrigannews.com – The season for reporting corporate earnings is well into its prime at this point. Along with a Federal Reserve meeting and monthly, traders will soon be digesting big tech’s fourth-quarter profits. That is a lot to comprehend. With so much on the line, volatility must be high, right? Wrong.
The Volatility Index, or has dropped a lot, getting close to levels that were last seen during the bull market in 2021. The VIX, which is known as Wall Street’s “fear gauge,” has a value of less than 20, which indicates that the 30-day price change will be less than 6%.
To put things in perspective, the VIX reached almost 40 at a number of different points last year, such as when Russia invaded Ukraine, when the stock market was at its lowest point in June, and when the market was nervous after the September inflation report.
The VIX finished the week at 19.85, which puts it right in line with the long-term average established 30 years ago when the Chicago Board Options Exchange first created the index. Like individual stocks, volatility oscillates between highs and lows, which investors should be aware of.
However, volatility is mean-reverting even though stock indexes rise over time: The VIX frequently spikes quickly before slowing down.
While Wall Street strategists are generally bearish on the market’s outlook over the next few months, major downside plunges are less likely than they were in 2022, according to the VIX right now.
The potential debt ceiling crisis is currently an afterthought for traders, which is one volatility catalyst. Of course, anything can happen. However, I do not anticipate that D.C.’s machinations will cause more turmoil in the stock market, and VIX traders appear to agree.
However, a low VIX is not conclusive. In April, August, and early December, readings below 20 were observed. The S&P 500 reached a near-term high point in each instance. Today’s somewhat muted VIX reading may hold if we receive positive news over the next few weeks, allowing stocks to further rise.
